By the end of her first term, more than half a billion solar panels would be installed across the country, and

Within 10 years of taking office, the United States would generate enough renewable energy to power every home in America.

Unfortunately, Hillary’s goals will not support U.S. jobs; but rather, Chinese jobs—since the Chinese make the majority of PV solar panels.[i]

Hillary Clinton’s Plan

The goals, if met, are meant to increase installed solar capacity by 700 percent, reaching 140 gigawatts by 2020, and expand renewable energy to at least a third of all electricity generation.

To accomplish these goals, Mrs. Clinton will use taxpayer funds to extend federal incentives for renewable energy; expand renewable energy on public lands, federal buildings, and federally-funded infrastructure; increase public investment in renewable energy R&D; provide competitive grants and other market-based incentives to empower states to exceed federal carbon pollution standards and accelerate renewable energy deployment; and provide a Solar X-Prize for communities that cut the red tape that slows rooftop solar installation times.

Mrs. Clinton’s fact sheet provides the following graph to show how dramatic the solar capacity goal would be. According to the Solar Energy Industries Association, there are about 20 gigawatts of solar capacity in the United States today.[ii] With current policy, the Energy Information Administration (EIA) expects it to grow to 27.6 gigawatts by 2020.[iii] Mrs. Clinton expects to exceed EIA’s current policy forecast by 407 percent.

Even EIA’s Analysis of EPA’s proposed ‘Clean Power Plan’, which reduces carbon dioxide emissions by 30 percent from 2005 levels by 2030 from existing power plants, just ups the capacity of solar to 32 gigawatts by 2020.[iv] That is because wind turbines are less expensive than solar power and are also favored by EPA in its design of the ‘Clean Power Plan’. According to EIA, solar photovoltaic (PV) power is 70 percent more expensive than wind power in 2020.[v] Even by 2030, EIA projects that solar capacity under the Clean Power Plan will be just 76 gigawatts, about half of Mrs. Clinton’s 2020 goal. Even by 2040, it is short of Mrs. Clinton’s goal at 136 gigawatts. The extra 120 gigawatts of solar power in Mrs. Clinton’s plan in overnight capital costs alone would total $428 billion ($2012 dollars). And taxpayers would be paying a hefty portion of the bill.

China Dominates the Solar PV Manufacturing Market

President Obama promised to bring jobs to the United States through his programs to incentivize the solar and wind industries. But failures like Solyndra and inexpensive labor in China results in substantial U.S. imports from that country and elsewhere in Asia. In 2012, China provided 35 percent of our imported photovoltaic modules with Asia providing 81 percent. Of our total supply that year, the United States only manufactured 12 percent domestically.

That data is the most recent available from the EIA. But it is clear from worldwide manufacturing data that China is taking over the production market for solar PVs. China has been the world’s largest manufacturer of solar panels since 2008, and since 2011, has produced the majority of global photovoltaics on an annualized basis. By the end of 2017, China is expected to have enough manufacturing capacity to produce 51 gigawatts of photovoltaics per year, an amount over twice as large as the global production of 24 gigawatts in 2010. So China will have the capacity to supply U.S. needs to help Mrs. Clinton achieve her goal.

Chinese solar manufacturing policy was driven by its export potential rather than concerns about supporting domestic installations, which were satisfied by default. Between 2007 and 2012, Chinese annual solar installations grew by over 175 times to 3,567 megawatts. Its output of PV cells in 2012, however, was 23,000 megawatts.[vi] Thus, about 85 percent of capacity was exported in that year. It produced 71 percent of global module production in 2012. (See table below.) In 2013, 71 percent of the crystalline modules produced worldwide were from China, totaling 26.5 gigawatts. China dominates the market because of its domestically available polysilicon, a favorable regulatory environment, and its inexpensive labor force.[vii]

President Obama’s war on coal has made it harder to for the United States to use our coal resources, which are by far the largest in the world. Instead of using our own coal, Mrs. Clinton now proposes to outsource our energy future to Asian—and particularly, Chinese—manufacturers.

Mrs. Clinton has wildly optimistic goals for solar power in this country that the American taxpayer will be supporting if she is elected. President Obama expected jobs to abound thanks to his move toward renewable energy. But rather than being made in America, solar modules are primarily being manufactured in China, which will continue to be the case due to the country’s favorable regulatory environment and inexpensive labor. Americans should ask themselves if they want to pursue deliberate policies that will make us more dependent on foreign sources for our energy when we have energy in tremendous abundance right here at home.

]]>http://instituteforenergyresearch.org/analysis/hillarys-solar-pv-plan-aids-chinese-manufacturing/feed/0It’s Time for President Obama to Approve Keystone XLhttp://instituteforenergyresearch.org/analysis/keystone-xl-it-is-time-for-president-obama-to-approve-it/?utm_source=rss&utm_medium=rss&utm_campaign=keystone-xl-it-is-time-for-president-obama-to-approve-it
http://instituteforenergyresearch.org/analysis/keystone-xl-it-is-time-for-president-obama-to-approve-it/#commentsThu, 30 Jul 2015 14:22:16 +0000http://instituteforenergyresearch.org/?p=27039President Obama has delayed approving the Keystone XL pipeline for almost 7 years, indicating that he would only approve the...

President Obama has delayed approving the Keystone XL pipeline for almost 7 years, indicating that he would only approve the pipeline if it did “not significantly exacerbate the problem of carbon pollution.”[1] The President’s assertion is suspect, considering there are other sources of oil that the President doesn’t seem to have problems with that emit more carbon dioxide when produced than Canadian oil sands.

The Keystone XL pipeline would carry Canadian oil sands and crude oil from North Dakota to U.S. refineries on the Gulf Coast. But environmentalists are against it, arguing that the greenhouse gas emissions from producing oil sands are greater than those from producing conventional crude oil, exasperating global warming. The U.S. State Department has conducted several studies that have indicated there would be no substantial increase in greenhouse gas emissions from Canadian oil sands because they would be developed even without the Keystone XL pipeline. President Obama extended the State Department’s review process by asking other federal agencies to provide comments on the pipeline. While the agency review was completed earlier this year, the permitting process has no deadline, and President Obama has not made a decision regarding Keystone XL.

A study of various oil types has found that Canadian oil sands is not the most greenhouse gas intensive oil. The most greenhouse gas intensive oil is Brass crude blend from Nigeria, where the uncontrolled release of methane (a greenhouse gas) during the oil extraction process generates greenhouse gas emissions that are much higher than Canadian oil sands. Further, Canadian oil sands is not the most greenhouse gas intensive oil type in North America. The most greenhouse gas intensive oil in North America is produced outside Los Angeles, in the Placerita oil field. According to a report from the California Air Resources Board , there are 9 oil fields in California that are more greenhouse gas intensive than Canadian oil sands.[2]

The California Air Resources Board calculates the amount of greenhouse gases emitted during production of the resources that refiners use in the state. Because about 80 percent of the emissions attributable to a barrel of oil occur during the combustion of refined fuel in a vehicle, the production of oil contributes only a small portion to total greenhouse emissions from vehicle use. It is irrelevant to the greenhouse gases emitted during combustion whether the fuel is made from light or heavy oil, or if the crude oil is produced by conventional or unconventional methods—the emissions are the same.

Below are examples of California oil and Alberta oil sands’ carbon intensities in grams of carbon dioxide equivalent per megajoule from a table supplied by the California Clean Air Board: [3]

The delays in permitting the pipeline total nearly 7 years and are costing TransCanada, the company that proposes to build Keystone, $8 billion—a continuously escalating figure due to the delays. The pipeline would carry an estimated 830,000 barrels a day of crude to refineries located along the U.S. Gulf Coast. Most would be from Canada, but the pipeline would also accommodate oil from the Bakken formation in and around North Dakota. At an oil price of $50 per barrel, the oil shipped would gross over $41 million dollars a day or about $15 billion per year.

The U.S. State Department concluded that Keystone XL would have a negligible impact on carbon emissions, also noting that the pipeline would not impact the surrounding water, vegetation, wildlife or air quality. Further, the pipeline would help the environment, because moving oil by pipeline produces 42 percent fewer emissions than transporting oil by rail, which is how the oil is being transported in lieu of the new pipeline.[4] Since 2008, the use of rail to ship oil has increased by a factor of 50, adding $5 to $10 per barrel in additional cost and greater environmental and safety risks.[5] TransCanada plans to build Keystone XL according to rigorous safety standards, including 59 new safety rules federal regulators added to TransCanada’s proposal.[1]

According to the State Department, the construction of Keystone will create 3,000 to 4,000 local jobs, which translates into about $100 million in earnings for American workers. TransCanada will also pay millions of dollars in local property taxes. The company has already paid $18 million in property taxes for the first Keystone pipeline.

The pipeline is also good for our energy security. Rather than import oil from Mexico and Venezuela to supply the heavy oil that our Gulf Coast refineries need, Canadian oil sands can be used instead. The United States gets over a third of its foreign oil from our friendly northern neighbor, providing secure oil supplies.

Environmentalists want to ensure that the Keystone XL from Alberta, Canada never gets built, because they believe that oil sands is a greenhouse gas intensive oil, and they increasingly admit they want to sequester all sources of organic energy in the ground and never use them.[7] But, researchers have shown that there is more greenhouse gas-intensive crude here in the United States in California, and that Nigeria has the most greenhouse gas-intensive crude in the world due to the flaring of methane emissions released. Further, Canada has set new emission targets, cutting its greenhouse gas emissions substantially from 2005 levels.

Whether the Keystone XL pipeline is built or not, Canadian oil sands will still be shipped to the United States and refined by our Gulf Coast refineries that are tuned to use heavy oil. The oil sands will be shipped to the Gulf Coast refineries by rail, costing Americans $5 to $10 a barrel more than pipeline transport. Canada’s secure supply of oil should be encouragement enough for President Obama to grant Keystone approval despite its other advantages, including safety and lower transport emissions.

[1] The first Keystone Pipeline has been operating safely for seven years, has safely transported more than 610 million barrels of oil and created 9,000 jobs.

As the Environmental Protection Agency (EPA) threatens to shut down vast amounts of coal power plants, the federal government continues to shower renewable energy producers with billions of dollars in subsidies and tax incentives. Despite claims from the wind industry itself that is it now cost competitive, Sen. Grassley (R–IA) recently sent a letter to Sen. Hatch (R-UT), Chairman of the Senate Finance Committee, urging him to extend the Production Tax Credit (PTC)—a multi-billion dollar subsidy for wind power—largely on the basis of alleged job creation.

We have discussed the grid reliability problems and high costs associated with shutting down reliable power plants and attempting to replace them with intermittent wind power, but we have not recently addressed arguments about jobs amid this dynamic. Sen. Grassley wrote that the wind energy industry supports 6,000 jobs in Iowa and 73,000 jobs nationally, and claims that the PTC ‘s expiration would “pull the rug out from under domestic renewable energy producers.” This is simply inaccurate, and perpetuates the myth that subsidizing wind turbines while shutting down existing power plants will be a net-job creator.

The EPA’s regulation of carbon dioxide emissions from power plants highlights the job-killing transition proposed by the administration. This carbon agenda, which the administration’s public relations team calls the “Clean Power Plan”, threatens to tear down the existing electricity generation infrastructure in the name of carbon dioxide emissions. This carbon agenda will magnify the market-distorting subsidies from the PTC—contributing to an estimated peak of one million job losses—will drain hundreds of billions of dollars from American families through increased energy bills, and will threaten the electric grid by rapidly switching from reliable to intermittent sources of electricity. Further, electricity from new wind energy sources is nearly three times more expensive than electricity from existing coal-fired plants.

Job Losses from the Clean Power Plan

The Energy Information Administration (EIA) estimates that power plant regulations, set to be finalized this summer, will accelerate coal closures and cause wind installations to skyrocket compared to the base case. Wind capacity is projected to increase by 236 percent by 2040, while coal-fired capacity will be reduced by 31 percent over the same period.

Job losses caused by EPA’s carbon agenda will be substantial. An estimate from the Heritage Foundation found a peak loss of 1 million jobs and an average annual loss of 300,000 jobs by 2030. The National Black Chamber of Commerce estimates that 1.4 million Black and Hispanic Americans are projected to lose their jobs due to the plan by 2035. Even if the wind energy industry tripled in size over the next two decades, these job losses will overwhelm any modest gains in the subsidized wind industry.

EPA’s carbon agenda, combined with impacts from other EPA regulations including the Mercury Air Toxic Standards and the Cross-State Air Pollution Rule, are some of the most expensive regulations in the agency’s four-decade history. These environmental policies together threaten to retire 103 gigawatts of reliable coal power—enough to meet the entire peak electricity demand of Brazil. The projected cost to ratepayers range from $366 billion to $566 billion by 2030. That’s money that could be put towards productive rather than destructive uses, which would help American families and create private-sector jobs.

Cost of the Production Tax Credit Means Net Job Losses

Wind power has grown over the last decade, fueled by tax credits and other incentives. The PTC, the main federal subsidy for wind power, has been around since 1992. It currently provides wind facility owners with a subsidy of $23 per megawatt-hour for the first 10 years of operation, so even if the subsidy expired at the end of the year, the industry is still scheduled to receive billions in benefits. Specifically, the PTC is projected to cost over $18 billion over the next decade.

Other incentives have also boosted the wind industry at the expense of taxpayers. As one example, a temporary cash grant was offered in lieu of a tax credit for turbines constructed between 2009 and 2011. The section 1603 grant program paid out over $13 billion for wind energy projects in five years, with wind projects claiming over 55 percent of the program’s total expenditures but making up only about 1 percent of all projects.

Source: Joint Committee on Taxation, Department of Treasury

The economic drag of these programs causes net harm to the economy and jobs. Despite arguments from wind lobbyists about the 73,000 jobs “created” by pro-wind policies, empirical evidence suggests that those 73,000 jobs likely come at the expense of more than 160,000 jobs throughout the rest of the American economy. As we have highlighted before:

The question isn’t whether the PTC “creates jobs”—it’s whether it creates more jobs than it takes away from the rest of the economy. In Spain, for example, where the government pushed “green energy subsidies” aggressively, 2.2 jobs were lost for every “green job” that the subsidies supported.

Focusing on visible jobs created by subsidies while ignoring the other effects of the subsidies—namely, the economic hardship that falls on the rest of America as it’s forced to foot the bill—is simply bad policy. American taxpayers cannot afford for advocates of the PTC to get their way yet again.

Conclusion

The PTC and section 1603 grant cost over $22 billion since 2009, and the PTC is projected to cost over $18 billion throughout the next decade. These subsidies continue to penalize coal-fired plants, which are already being shut down in droves due to the EPA’s Climate Rule and several anti-coal rules that came before it. With job losses due to anti-coal regulations and costly wind subsidies projected to reach well over one million, wind advocates should drop the jobs rhetoric and focus on creating a product that no longer stakes its existence on a federal subsidy.

IER recently released a first-of-its-kind study on the cost of electricity from the existing generation fleet, titled “The Levelized Cost of Electricity from Existing Generation Resources.” A major takeaway from the study is that the cost of electricity from new wind resources is three times more expensive than electricity from existing nuclear, hydroelectric, and coal power plants. Power from new combined cycle natural gas plants—the lowest-cost new source of electricity—is about twice as expensive as existing coal-fired electricity.

The bottom line: shutting down existing power plants before the end of their economic lives and replacing them with new generation resources will increase electricity rates.

The American Wind Energy Association (AWEA), the lobbying arm of the wind industry, wrote a response to the IER study. AWEA referred to our study as “a new attack piece” against the wind industry, despite the fact that the study was general in nature and reported on all major sources of electricity including natural gas, coal, nuclear, and hydroelectric power. The central theme in AWEA’s argument is that wind energy “is one of the lowest cost sources of electricity, particularly among low- and zero-emission energy sources.”

AWEA may not like our finding that existing nuclear power plants provide electricity at a levelized cost of $29.60 compared to new wind’s Levelized Cost of Electricity (LCOE) of $106.80. But AWEA’s vitriol towards data-driven reports by IER is nothing new—in the past AWEA has reacted with name-calling when IER publishes facts about the wind industry. Below, we go point-by-point through AWEA’s claims and show that our study stands up to AWEA’s scrutiny.

AWEA Claim #1: the “first trick in their paper The Levelized Cost of Electricity from Existing Generation Sources is using obsolete wind cost assumptions.”

This claim is false,unless data that was current until June 2015 is considered “obsolete” for a study released in the same month. Our study was finalized in June 2015—the same month the Energy Information Administration (EIA) came out with new LCOE data for new sources of electricity. We used EIA’s 2014 data, which was the most recent available at the time. Updating to 2015 data does not change the result of the analysis, as the table below shows.

The LCOE 2015 update from EIA reduces the cost of wind by about $7 per megawatt-hour (MWh) from $80.30 to $73.60. Crucially, even that lower estimate (which excludes some categories of the cost of wind) shows that wind electricity is twice as expensive as existing nuclear ($29.60), hydroelectric ($34.20), and coal-fired power ($38.4).

AWEA Claim #2: “[M]arket data indicate the actual average purchase price for wind energy was $25.59/MWh in 2013, or well under $50/MWh if the impact of the Production Tax Credit (PTC) on long-term wind purchase prices is removed.”

This claim is wildly misleading. It may be true that the average price of recent power purchase agreements (PPAs) is only $25/MWh, but that says little about the true cost of wind power. AWEA lobbyists know better than anyone how many subsidies and mandates are built into PPA prices for wind power. Wind is the beneficiary of dozens of subsidies and other government support, yet AWEA only recognizes one of the largest sources—the wind production tax credit (PTC).

The reality is that AWEA’s own made-up numbers actually show that wind is not competitive with existing sources of generation—and calculating the cost of existing sources of generation was the point of our report. Taking AWEA’s figure above ($50/MWh) indicates that building new wind is already an unattractive option relative to existing resources like nuclear power ($29.60). By failing to recognize this simple math, AWEA seems to miss the point of our study.

However, the PTC is not the only subsidy distorting the PPA price for wind power. Wind is the beneficiary of at least five major subsidies:

But don’t take our word for it. These subsidies are well known. In 2010, a White House report written by Larry Summers, Ron Klain, and Carol Browner explained that the subsidies for wind projects are massive. They explained that total government subsidies for the Shepherds Flats wind project totaled $1.2 billion. The total project cost $1.9 billion. When government subsidies cover nearly 60 percent of the value of a project, the sale price loses meaning as a true measure of cost.

And as we highlighted in our report titled The Case Against the Wind Production Tax Credit, which AWEA did not challenge, the Government Accountability Office counted 82 initiatives across nine federal agencies that supported the wind industry. It is disingenuous for AWEA to point to one subsidy and pretend it tells a complete story about the federal support enjoyed by wind power.

Because of the many subsides artificially lowering the PPA price for wind power, PPA prices do not tell an accurate story of the real cost of electricity from wind facilities. EIA estimates of the LCOE of wind power are much more defensible.

EIA notes that “The LCOE values for dispatchable and nondispatchable technologies are listed separately in the tables, because caution should be used when comparing them to one another.” This is because wind is, by its nature, not reliable. The wind doesn’t always blow. In order to make more apples-to-apples comparisons with other sources of generation, we needed to make some adjustments to EIA’s estimates to reflect wind’s unreliability and need for back up when the wind isn’t blowing.

To EIA’s baseline data, we added in the costs imposed by unreliable wind electricity on other resources—we call these “imposed costs.” Because wind is unreliable, it imposes very real and significant costs on other sources of electricity generation and the power grid. With a more complete picture of the cost of wind power, we estimate that the LCOE for wind is $106.80.

AWEA Claim #3: “Imposed Costs are actually ‘sunk costs.’”

False. By definition, sunk costs are already incurred and hence unavoidable. In contrast to sunk costs, the imposed costs we calculate in our study not only apply to existing generation resources but also new resources. The costs are ongoing and avoidable. In fact, the way we calculated imposed costs ties directly to the most relevant comparison of ongoing—not sunk!—costs in the electricity industry: the pairing of new wind facilities with new combined cycle gas plants. On this point, AWEA fails basic economics.

What are the “imposed costs” of wind? Notably, wind is the only intermittent resource in our study. One implication of wind power’s intermittency is that it has a parasitic effect on the rest of the generation fleet, which has to back down its output—which is controllable or “dispatchable”—in lockstep with any increase in wind generation. By displacing the energy from other generation resources without replacing their capacity to the same extent, wind imposes costs on the dispatchable fleet and raises the LCOE for dispatchable resources.

In the chart below, the dark blue areas represent the “cutting in” effect of wind power on the power grid. The gas plant’s output (light blue) represents the non-wind resources on the power grid, which are forced to back down in order to accommodate the unreliable wind output (dark blue). Our estimate of “imposed costs” shows how this parasitic effect increases the LCOE for non-wind resources using natural gas plants as a proxy.

In our calculation of the imposed cost of wind, we used new combined cycle natural gas output as a proxy for the mix of generation wind might displace. Specifically, we applied the fixed costs of new combined cycle gas at two different capacity factors—best case and fleet average—to estimate the effect on each of intermittent wind generation. This is a reasonable and fair choice for the example because: 1) new combined cycle gas is the most common dispatchable technology being built today, and 2) new combined cycle gas units have the lowest fixed cost per MWh of all new dispatchable generation technologies. If wind displaced resources with higher fixed cost, imposed cost would be higher.

Using conservative estimates, we find that the “imposed cost” of wind power on the dispatchable fleet is between $15.87 and $29.94 per MWh. These costs are in no way “sunk.”

AWEA Claim #4: “EIA’s method shows that a MWh of wind energy has an average economic value of $64.60/MWh, much higher than the current cost of wind energy of under $50/MWh, indicating wind energy provides net benefits for consumers.”

False. Just dead wrong. At this point in the “critique,” AWEA’s sleight of hand reaches new levels.

Even if you agree that the EIA estimate above ($64.60/MWh) reflects the real economic value of wind to the power grid, AWEA’s claim that electricity from wind only costs $50/MWh has no basis in reality. As we explained above, AWEA’s estimate ignores the dozens of subsidies that wind receives in addition to the wind production tax credit.

If AWEA had used EIA data to calculate the “net benefits” of wind power, it would have subtracted EIA’s cost estimate of $73.60/MWh from EIA’s “benefit” estimate of $64.60/MWh to come up with negative $9/MWh. The results only get worse when we adjust the EIA estimates to reflect the imposed costs highlighted above. Using our own updated cost estimate of $106.80/MWh for wind and EIA’s “benefit” estimate, we would have to conclude that wind power falls woefully short in a cost-benefit test—net benefits would be negative $42.20/MWh.

Conclusion

Our study on the cost of electricity from the existing generation fleet is a data-driven analysis of the economics of the power grid. AWEA’s characterization of the study as “a new attack piece” against the wind industry is unfounded—unless AWEA perceives reality as an attack on the wind industry. The fact is, shutting down existing power plants before the end of their economic lives is an incredibly expensive thing to do and, as a result, will increase the cost of electricity. That is true whether the replacement technology is wind, natural gas, or any other new resource.

AWEA’s misinformation surrounding IER’s work is nothing new. As with previous critiques of IER reports, AWEA’s rebuttal to “The Levelized Cost of Electricity from Existing Generation Resources” fails to identify any problems with our paper while exposing AWEA’s own flawed analysis.

A recent headline on Bloomberg announces, “Cheap Oil Is Bad for the Economy (At Least, So Far).” The assessment is based on a crude (no pun intended) Keynesian analysis from Goldman Sachs, which views the economy in terms of total spending. In reality, genuine economic strength comes from the ability to transform resources into goods and services that consumers desire. From this perspective, the fall in oil prices—driven by factors such as the U.S. shale boom and the halt in Federal Reserve monetary inflation—is an unambiguously good thing for the American economy.

Goldman: It’s All About (Spending) the Money

The following excerpt captures the flavor of the Bloomberg article:

Cheap oil means cheap gasoline, and the assumption throughout the oil price rout has been that for the U.S. economy, built on consumer spending, cheap gas is all good. In theory, yes. In practice, it’s been tough to find the benefits in the economic data this year.

Goldman Sachs estimates that a decline in energy-related investment such as new drilling equipment, caused by low oil prices, subtracted about half a percentage point from economic growth during the first half. That’s a pretty hefty bite out of a growth number that probably won’t be much higher than 2.5 percent over the first six months of 2015. A note out from Goldman this week suggests that so far the negatives of inexpensive crude oil appear to have outweighed the spur to consumer spending. Goldman forecasts that the drop in oil prices will account for about 30 to 40 percent of the slowdown in economic growth from its annual pace at the end of last year. [Bold added.]

This type of analysis is common on Wall Street, but it’s totally wrongheaded. If someone cured cancer, it would be silly to fret about all the medical spending that would be avoided.

A major new force in the world supply and demand balance is the surge in U.S. crude output, emanating from the revolution in shale production. The following chart, showing an index of U.S. crude oil output (with the 2007 value set to 100), is simply incredible:

To understand why oil prices may have fallen when they did, there are obviously many factors. But one significant influence seems to be the halt of the Federal Reserve’s monetary expansion (popularly dubbed “QE3”), as the following chart shows:

As the chart shows, oil prices (blue) began their rapid decline right about the time that the Fed completed its so-called “taper,” and held its total assets (red line) constant. This (relative) tightening of U.S. monetary policy went hand-in-hand with a strengthening of the U.S. dollar (as I explained in this IER post in December 2014), and presumably made worldwide investors less anxious to hold commodities (which are a classic hedge against inflation).

Conclusion

If investment in oil and gas drops because of government interference, then that does indeed signify harm to the economy. But the reason isn’t that investment spending per se is always a good thing; it’s certainly possible for entrepreneurs to pour too much into certain projects. In particular, government mandates and taxes divert resources away from where they do the most good, as judged by consumers.

To the extent that falling oil prices reflect (among many factors) domestic improvements in drilling and “fracking” techniques, as well as a halt to Federal Reserve monetary inflation, these are unambiguously good things for the U.S. economy. Consumers obviously gain from having access to fuel at a lower price, and their gain more than compensates the direct loss to oil producers who are taking advantage of the new techniques. Another point is that the U.S. is still a net importer of crude and petroleum products (by about 5 million barrels per day), showing that a drop in the world price of oil would tend to benefit the U.S. economy as a whole. Indeed, that’s why Goldman analysts back in December said falling oil prices would act like a huge “tax cut” for the middle class especially. (In contrast, oil-exporting nations that have not benefited from their own version of a “shale boom” could be hurt, on net, from the fall in global prices.)

It seems that the oil market gets no respect. When prices are unusually high, the pundits complain about families struggling at the pump. And then when prices crash, the pundits complain about declines in energy investment. The real story here is that U.S. oil producers have increased production more than anybody dreamed a decade ago, exploding the narrative that we are an energy-starved country and need to embrace government-coerced conservation and other interventions as our only hope.

In an attempt to garner support for the Environmental Protection Agency’s controversial regulation of carbon dioxide emissions from power plants, President Obama and EPA officials have taken to linking climate change to an issue that hits most Americans close to home: asthma. The problem is that carbon dioxide—which the rule regulates – does not cause asthma.

According to the EPA, one in ten American children suffers from asthma. President Obama’s own daughter, Malia, is among those who have experienced the disease. In a recent interview, the president cited his daughter’s asthma to call on Americans to support the EPA’s regulation, which forces states reduce carbon dioxide emissions from power plants by 30 percent by 2030. EPA claims its rule will improve America’s health by reducing criteria pollutants that contribute to asthma prevalence. Instead, the data show that while pollution has been dropping for decades, asthma rates are rising. This casts doubt on the health benefits of the EPA’s rule and suggests that other factors, such as poverty, may play a larger role in asthma development than air pollution.

The EPA is relying on dubious asthma claims because its climate rule has no discernible impact on climate change. Using the EPA’s own models, the climate rule reduces global warming by just 0.02 degrees Celsius and slows sea-level rise by just 0.01 of an inch by the year 2100—equivalent to the thickness of three sheets of paper. It leaves Americans to wonder why the EPA is pursuing a climate rule that does nothing to address climate change while inflicting severe financial burdens on the poor—taking money out of their pockets and making it harder for families to pay for food, housing, and medicine. As a result, the EPA should withdraw its rule.

Data Cast Doubt on EPA’s Asthma Claims

The EPA claims its plan will lead to climate and health benefits worth $55 billion to $93 billion in 2030, including the prevention of up to 6,600 premature deaths and 150,000 asthma attacks in children. Currently, about 25 million Americans suffer from asthma, and the EPA is claiming that its rule, by reducing these Americans’ exposure to outdoor air pollutants (including sulfur dioxide and particulate matter), can help to alleviate this health burden.

Note: these air pollution reductions are known as co-benefits since they are incidental to the point of the rule, which is to reduce greenhouse gas emissions. Since the EPA admits its climate rule has no effect on climate change, the agency must rely on these incidental benefits to justify its regulation.

Asthma is a serious problem in the United States. Incidences of asthma have increased by over 130% since 1980, resulting in over 3,300 deaths in 2009 alone. The administration is misleading, however, in trying to link the disease to climate change policy. Government data taken from the EPA and the Center for Disease Control (CDC) cast doubt on the claim that reducing air pollution necessarily reduces asthma. According to the EPA data, the six “criteria pollutants” that the agency regulates have declined by 62% since 1980. Meanwhile, the prevalence of asthma has increased steadily.

The five charts below depict the data that question the EPA’s link between emission reductions and asthma. The data were taken from the EPA’s National Emissions Inventory the CDC’s National Surveillance for Asthma and National Health Interview Survey. The charts show that while criteria pollutants sulfur dioxide, nitrogen dioxide, ozone, and particulate matter have decreased over the past several years, child asthma rates have continued to climb, by as much as 131% since 1980. These conflicting data raise questions about the health benefits of mandating further emission reductions.

Sources: U.S. Centers for Disease Control and Prevention (CDC); U.S. Environmental Protection Agency (US EPA)

Note: the discontinuity in the asthma trend line results from a survey redesign that took place in 1997. Prior to the redesign, the CDC collected data on asthma period prevalence, which reflects the percentage of the U.S. population having asthma in the previous 12 months. In 2001, the CDC began collecting data on current asthma prevalence, representing the percentage of the population having asthma at the time of the survey.

The Health – Wealth Link

If the EPA is correct that reducing pollution reduces asthma, then why are asthma rates rising as pollution is falling? The EPA seems uninterested in answering this question, though it is central to their claim that the Clean Power Plan will improve public health.

Since the EPA’s rule has no impact on climate change, the federal government relies on health claims like asthma alleviation to justify its climate rule. However, the EPA ignores the link between wealth and health. To put it another way, by making people poorer, the EPA’s regulation may make people sicker.

The EPA’s rule will raise energy prices by forcing the closure of affordable coal-fired plants to make way for more expensive plants fueled by other sources. This could raise electricity prices by double digits for residents of 43 states, a burden that will be felt most by America’s poor. The poor generally spend a higher percentage of their incomes on electricity and, as a recent Johns Hopkins study shows, poverty makes children more likely to develop asthma. By raising energy prices, the climate rule will destroy jobs, increase poverty, hinder lower-income families’ efforts to escape poverty, and perhaps make them more vulnerable to asthma.

In addition, these poor households will have to sacrifice other necessities in order to afford the higher energy prices. Among these will be visits to the doctor for those currently suffering from asthma. According to the CDC, 8.9 million asthma-related doctor visits are made each year. Poorer American families that are both more prone to asthma and more likely to be hurt economically by the rule will have less money to spend on asthma treatment and other health expenses. About 9.2 million families have annual pretax incomes of less than $10,000. For those millions of families, 32 percent went without food for at least one day; 42 percent went without medical or dental care; and 38 percent did not fill a prescription or took less than the full dose, according to a report from the National Energy Assistance Directors’ Association. The EPA should not force families to make tradeoffs between paying their utility bill and medical care, especially when it comes to treating their child’s asthma.

To make matters worse, the EPA ignores its own analysis on the relationship between income and health. In the past, EPA has admitted a positive correlation between “people’s wealth and health status, as measures by mortality, morbidity, and other metrics.” Yet the agency made no effort to quantify the wealth-health correlation in its rule, likely because it would not benefit the EPA. As the Energy & Environment Legal Institute explains in a public comment to the EPA on its ozone rule, the Office of Management and Budget recommends using a “federal estimate of one premature death for every $8.5 million ($US 2006) in reduction of disposable income.” Using the NERA study cited above, which estimates GDP losses of $366 billion, we estimate that EPA’s climate rule could result in more than 32,000 premature deaths. EPA cannot ignore these health costs.

President Obama and the EPA are likely inflating the health benefits and ignoring the health costs of their climate rule. Since the EPA admits the climate rule has no effect on climate change, the agency uses co-benefits, including asthma, to justify its rule. However, the EPA fails to explain why asthma rates continue to rise while pollution continues to fall. In addition, the EPA ignores that its rule could increase asthma development while pushing more families into poverty. The EPA’s rule rests on shoddy science and should be withdrawn.